Electromed, Inc. Announces Fiscal 2020 Second Quarter Financial Results

Company Release - 2/11/2020 4:30 PM ET

-- Net income of $1.2 million driven by 6.7% revenue growth from prior year period and 18.3% operating margin --

NEW PRAGUE, Minn.--(BUSINESS WIRE)-- Electromed, Inc. (“Electromed” or the “Company”) (NYSE American: ELMD), a leader in innovative airway clearance technologies, today announced financial results for the three months ended December 31, 2019 (“Q2 FY 2020”).

Q2 FY 2020 Highlights

  • Net revenue increased 6.7% to $8.5 million from $8.0 million for the three months ended December 31, 2018 (“Q2 FY 2019”).
  • Operating margin improved to 18.3% from 8.4% in Q2 FY 2019.
  • Operating income grew 132.1% to $1.6 million from $0.7 million in Q2 FY 2019.
  • Net income rose 211.4% to $1.2 million, or $0.14 per diluted share, from $0.4 million, or $0.04 per diluted share, in Q2 FY 2019.
  • Cash flow from operating activities increased to $1.4 million from $0.5 million in Q2 FY 2019.

Kathleen Skarvan, President and Chief Executive Officer of Electromed, commented, “We delivered another strong bottom-line performance in the second quarter, with net income of approximately $1.2 million, driven by year-over-year revenue growth of 6.7% and significant operating margin improvement to 18.3%. This quarter we produced $938,000 of annualized homecare revenue per direct field sales employee, exceeding our target productivity range of between $750,000 and $850,000. Our institutional business continued to perform well, with second quarter revenue up 22.8% year-over-year. Overall, we are very pleased with the execution of our organic growth strategy in the first half of fiscal 2020.”

Ms. Skarvan continued, “For the remainder of the fiscal year, we plan to increase investment on clinical studies, new product development and sales staff expansion to reach our previously disclosed target of 38 direct field sales employees. We believe these investments will help us achieve low double-digit revenue growth and operating margin improvement over the long term. An increasing number of physicians and patients are embracing the benefits of high frequency chest wall oscillation therapy with our SmartVest® Airway Clearance device, particularly in the large, underpenetrated bronchiectasis market, underpinning our enthusiasm for growth.”

Q2 FY 2020 Review

Net revenue increased 6.7% to $8.5 million, from $8.0 million in Q2 FY 2019, primarily driven by higher home care revenue. Home care revenue rose 4.6% to $7.7 million from $7.3 million in Q2 FY 2019, primarily due to a higher average allowable based on payer mix and improved productivity. Field sales employees totaled 40, of which 34 were direct sales, at the end of Q2 FY 2020, compared to 38 at the end of Q1 FY 2020, of which 32 were direct sales, and 52 at the end of Q2 FY 2019, of which 44 were direct sales. Institutional revenue increased 22.8% to $494,000 from $402,000 in Q2 FY 2019, primarily due to a higher average selling price per device compared to the prior fiscal year. In Q1 FY 2020 the Company began selling to home medical equipment distributors who in turn sell the SmartVest System in the U.S. home care market. Revenue from home medical equipment distributors totaled $131,000 during Q2 FY 2020.

Gross profit increased 10.1% to $6.7 million, or 78.1% of net revenue, from $6.1 million, or 75.7% of net revenue, in Q2 FY 2019. The increase in gross profit resulted primarily from an increase in home care revenue. The increase in gross profit as a percentage of net revenue was driven by a higher average allowable based on payer mix compared to the same period of the prior year.

Operating expenses, which include selling, general and administrative (“SG&A”) as well as research and development (“R&D”) expenses, totaled $5.1 million, or 59.8% of net revenue, compared with $5.4 million, or 67.2% of net revenue, in Q2 FY 2019. SG&A expenses decreased by $185,000 to $5.0 million from $5.1 million in Q2 FY 2019, primarily reflecting lower payroll and compensation expenses due to a lower number of employees in sales and administrative roles. As a percentage of revenue, SG&A expenses improved to 58.1% compared to 64.3% in the same period in the prior year, reflecting fewer employees and open positions in sales and administrative roles. R&D expenses decreased to $143,000, from $238,000 in Q2 FY 2019.

Operating income totaled $1.6 million, compared to $0.7 million in Q2 FY 2019.

Net income before income taxes totaled $1.6 million compared to $0.7 million in Q2 FY 2019.

Net income equaled $1.2 million, or $0.14 per diluted share, compared to $0.4 million, or $0.04 per diluted share, in Q2 FY 2019. In Q2 FY 2020, income tax expense totaled $419,000, compared to $311,000 in the same period of the prior year.

Year-to-Date FY 2020 Summary

For the six months ended December 31, 2019, net revenue grew 10.2% to $16.8 million, from $15.3 million in the same period of fiscal 2019. Gross margins were 77.3%, compared to 75.9% in the prior fiscal year period, while net income was approximately $2.2 million, or $0.25 per diluted share, compared to approximately $0.5 million, or $0.06 per diluted share, in the first six months of fiscal 2019.

Financial Condition

The Company’s balance sheet at December 31, 2019 included cash of $9.2 million, no debt, working capital of $23.3 million, and shareholders’ equity of $28.5 million.

Conference Call

Management will host a conference call on February 12, 2020 at 7:30 am CT (8:30 am ET) to discuss Q2 FY 2020 financial results and other matters.

Interested parties may participate in the call by dialing:

  • (877) 407-9753 (Domestic)
  • (201) 493-6739 (International)

The conference call also will be accessible via the following link: https://78449.themediaframe.com/dataconf/productusers/elctr/mediaframe/34587/indexl.html

For those who cannot listen to the live broadcast, an online webcast replay will be available in the Investor Relations section of the Company’s web site at: http://investors.smartvest.com/

About Electromed, Inc.

Electromed, Inc. manufactures, markets, and sells products that provide airway clearance therapy, including the SmartVest® Airway Clearance System, to patients with compromised pulmonary function. The Company is headquartered in New Prague, Minnesota and was founded in 1992. Further information about the Company can be found at www.smartvest.com.

Cautionary Statements

Certain statements in this press release constitute forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can generally be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan” “potential,” “should,” “will,” and similar expressions, including the negative of these terms, but they are not the exclusive means of identifying such statements. Forward-looking statements cannot be guaranteed, and actual results may vary materially due to the uncertainties and risks, known or unknown associated with such statements. Examples of risks and uncertainties for the Company include, but are not limited to the competitive nature of our market; changes to Medicare, Medicaid, or private insurance reimbursement policies; changes to state and federal health care laws; changes affecting the medical device industry; our ability to develop new sales channels for our products such as the homecare distributor channel; our need to maintain regulatory compliance and to gain future regulatory approvals and clearances; new drug or pharmaceutical discoveries; general economic and business conditions; our ability to renew our line of credit or obtain additional credit as necessary; our ability to protect and expand our intellectual property portfolio; the risks associated with expansion into international markets, as well as other factors described from time to time in the Company’s reports filed with the Securities and Exchange Commission (including the Company’s most recent Annual Report on Form 10-K, as amended from time to time, and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K). Investors should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or potentially inaccurate assumptions investors should take into account when making investment decisions. Shareholders and other readers should not place undue reliance on “forward-looking statements,” as such statements speak only as of the date of this release.

Financial Tables Follow:

Electromed, Inc.

Condensed Balance Sheets

 
December 31, 2019June 30, 2019
(Unaudited)
Assets
Current Assets
Cash

$

9,206,722

$

7,807,928

Accounts receivable (net of allowances for doubtful accounts of $45,000)

 

12,718,220

 

12,760,042

Contract assets

 

1,190,810

 

995,847

Inventories

 

2,651,420

 

2,622,000

Prepaid expenses and other current assets

 

313,436

 

353,214

Income taxes receivable

 

206,489

 

-

Total current assets

 

26,287,097

 

24,539,031

Property and equipment, net

 

3,914,934

 

3,604,744

Finite-life intangible assets, net

 

552,093

 

581,413

Other assets

 

122,057

 

45,044

Deferred income taxes

 

611,000

 

629,000

Total assets

$

31,487,181

$

29,399,232

 
Liabilities and Shareholders’ Equity
Current Liabilities
Current maturities of other long-term liabilities

$

82,938

$

30,320

Accounts payable

 

610,610

 

586,575

Accrued compensation

 

1,202,694

 

1,404,662

Income taxes payable

 

-

 

288,511

Warranty reserve

 

770,000

 

810,000

Other accrued liabilities

 

327,531

 

530,453

Total current liabilities

 

2,993,773

 

3,650,521

Other long-term liabilities

 

39,628

 

14,737

Total liabilities

 

3,033,401

 

3,665,258

 
Commitments and Contingencies
 
Shareholders' Equity
Common stock, $0.01 par value; authorized: 13,000,000 shares; 8,478,448
and 8,408,351 issued and outstanding at December 31, 2019 and June 30, 2019,
respectively

 

84,784

 

84,084

Additional paid-in capital

 

16,647,320

 

16,127,826

Retained earnings

 

11,721,676

 

9,522,064

Total shareholders’ equity

 

28,453,780

 

25,733,974

Total liabilities and shareholders’ equity

$

31,487,181

$

29,399,232

Electromed, Inc.

Condensed Statements of Operations (Unaudited)

 
For the Three Months Ended
December 31,
For the Six Months Ended
December 31,

2019

2018

2019

2018

Net revenues

$

8,546,942

$

8,012,487

$

16,849,440

$

15,288,370

Cost of revenues

 

1,871,434

 

1,950,040

 

3,831,584

 

3,683,039

Gross profit

 

6,675,508

 

6,062,447

 

13,017,856

 

11,605,331

 
Operating expenses
Selling, general and administrative

 

4,965,053

 

5,149,613

 

9,859,858

 

10,422,598

Research and development

 

143,477

 

237,838

 

242,414

 

306,028

Total operating expenses

 

5,108,530

 

5,387,451

 

10,102,272

 

10,728,626

Operating income

 

1,566,978

 

674,996

 

2,915,584

 

876,705

 
Interest income, net

 

37,078

 

16,521

 

77,028

 

29,974

Net income before income taxes

 

1,604,056

 

691,517

 

2,992,612

 

906,679

 
Income tax expense

 

419,000

 

311,000

 

793,000

 

369,000

Net income

$

1,185,056

$

380,517

$

2,199,612

$

537,679

 
Income per share:
Basic

$

0.14

$

0.05

$

0.26

$

0.06

Diluted

$

0.14

$

0.04

$

0.25

$

0.06

 
 
Weighted-average common shares outstanding:
Basic

 

8,390,125

 

8,298,861

 

8,384,807

 

8,279,493

Diluted

 

8,759,143

 

8,669,739

 

8,698,168

 

8,658,346

Electromed, Inc.

Condensed Statements of Cash Flows (Unaudited)

 
Six Months Ended December 31,

2019

2018

Cash Flows From Operating Activities
Net income

$

 

2,199,612

 

$

 

537,679

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation

 

318,982

 

 

329,947

 

Amortization of finite-life intangible assets

 

60,219

 

 

59,863

 

Amortization of debt issuance costs

 

-

 

 

1,958

 

Share-based compensation expense

 

444,258

 

 

500,745

 

Deferred income taxes

 

18,000

 

 

3,000

 

Loss on disposal of property and equipment

 

1,294

 

 

1,198

 

Changes in operating assets and liabilities:
Accounts receivable

 

41,822

 

 

(126,158

)

Contract assets

 

(194,963

)

 

(5,468

)

Inventories

 

(19,448

)

 

(242,459

)

Prepaid expenses and other assets

 

76,213

 

 

513,702

 

Income tax receivable

 

(206,489

)

 

(24,860

)

Income tax payable

 

(288,511

)

 

(397,390

)

Accounts payable and accrued liabilities

 

(427,390

)

 

(331,168

)

Net cash provided by operating activities

 

2,023,599

 

 

820,589

 

 
Cash Flows From Investing Activities
Expenditures for property and equipment

 

(669,842

)

 

(122,337

)

Expenditures for finite-life intangible assets

 

(30,899

)

 

(28,794

)

Net cash used in investing activities

 

(700,741

)

 

(151,131

)

 
Cash Flows From Financing Activities
Principal payments on long-term debt including capital lease obligations

 

-

 

 

(1,103,001

)

Issuance of common stock upon exercise of options

 

75,936

 

 

188,821

 

Net cash provided by (used in) financing activities

 

75,936

 

 

(914,180

)

Net increase (decrease) in cash

 

1,398,794

 

 

(244,722

)

Cash
Beginning of period

 

7,807,928

 

 

7,455,844

 

End of period

$

 

9,206,722

 

$

 

7,211,122

 

 

Electromed, Inc.
Jeremy Brock, Chief Financial Officer
(952) 758-9299
investorrelations@electromed.com

The Equity Group Inc.
Kalle Ahl, CFA
(212) 836-9614
kahl@equityny.com

Devin Sullivan
(212) 836-9608
dsullivan@equityny.com

Source: Electromed, Inc.